Issuer officials who said Treasury's final issue price rules are a vast improvement over earlier proposals nevertheless raised concern that they might discourage competitive sales of bonds or create problems for issuers if underwriters run afoul of the rules.

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CHICAGO As Iowans and other Midwesterners assessed the damage of what will be known as the great 2008 flood, some still were awaiting yesterday the full brunt of destruction as some Mississippi River levees continued to fail.

President Bush will tour Iowa today as Congress is poised this week to approve $2 billion in initial relief funding that's been included in a supplemental war spending bill. The funds likely would be allocated through the Federal Emergency Management Agency. While the fiscal toll from flood damage is still climbing, it is in the billions, including $2.7 billion in crop damage in Iowa and $1 billion in damage sustained by the second largest Iowa city of Cedar Rapids.

The overall damage poses short and long-term threats to local governmental units, schools districts and other borrowers like healthcare providers and universities with some facing the loss of property tax and sales tax revenues, a drop in tourism and other revenues amid the need for massive repairs and infrastructure improvements.

While torrential rains are blamed for the flooding, infrastructure experts have warned that some areas are especially at risk because of aging levees that are suffering from seepage and rust. About 2,000 levees failed during Hurricane Katrina in New Orleans.

Officials have countered some fiscal concerns saying that federal aid along with insurance will offset the losses, while generating strong economic activity that will aid in the recovery process and could, ultimately, leave some in stronger fiscal shape, like Grand Forks, North Dakota, after massive floods in 1993.

The most startling pictures came from Cedar Rapids where large swaths of the city 1,300 square blocks and 3,900 homes were under water earlier in the week. The city is reopening as waters recede. While rivers that flow into the Mississippi are receding, flooding continues elsewhere, as towns along with the Mississippi prepare for the river to crest in some areas. The federal Army Corps of Engineers has warned that many levees are likely to fail.

Moody's Investors Service issued a special commentary yesterday as part of their monitoring of credit issues in Iowa as a result of the flood. Analysts' primary concern is the ability of borrowers with July 1 debt service payments to meet their obligations. Analyst Edward Damutz said only a handful of issuers owe payments on that date and all are expected to make them on time. No payments were missed following the 1993 floods that ravaged Midwestern towns along with Mississippi, according to state Treasurer Michael Fitzgerald.

Aside from their ability to cover debt service payments, Damutz said the rating agency has short term concerns over how borrowers with little liquidity will cope amid the damage. Over the longer haul, Damutz said the agency will look for the economic impact on the state economy especially given its heavy reliance on the agriculture sector.

The state which carries issuer credit ratings just below top marks also remains in sturdy financial shape, having generally weathered the economic slowdown, Damutz noted. Moody's rates a total of $7.9 billion of debt held by 181 tax-exempt issuers across all sectors in the state.

"Our expectation is that in the communities we rate, the out-of-pocket costs will be limited," said Standard & Poor's analyst John Kenward. He added that the rating agency does not cover some of the areas likely to be hardest hit by flooding, including many of the credits in eastern Iowa.

"The downtown areas might lose some property tax payers if they stay underwater too long," he said. "The biggest immediate expense would be getting the infrastructure and streets back up, and communities would need to front the money to get that working again, with potential reimbursement from FEMA. The second wave of potential loss is from loss of property value and businesses that were held underwater."

The ultimate impact on debt is still unclear. "I don't believe it's the case that bonds already in the market at a risk in the case of Indiana, though we can't say yet for Iowa," said Ball State University economist Michael Hicks, who authored a pair of recent reports assessing damage costs in Indiana and Iowa. "In terms of issuance, you might see some growth in issue of revenue bonds as a consequence of flood damage, but not a market-changing increase in the Indiana experience," he said. "If Iowa gets big enough, it could be."

Iowa Gov. Chet Culver is considering calling a special session of the Legislature, but not until the state has a firmer handle on damage. "Quite frankly, right now we can't put a finger on the total loss. There's a good prospect that the federal government will cover the brunt although we know there will some damage to roads that the state will need to make," Fitzgerald said.

The state's reserves a cash flow account and a formal budget reserve stand full at about $600 million, or 10% of general fund revenues. "We are flush if the governor feels he needs to tap money quickly," he said. The state's Senators Tom Harkin, a Democrat, and Charles Grassley, a Republican, will ask FEMA to waive the 25% state match for cleanup assistance for 60 days.

The Ball State report from Hicks and fellow researcher Mark Burton put early damage costs at roughly $160 million, including about $45 million in public infrastructure costs, which includes levee systems along the river, said Hicks. "Iowa is a smaller state [than some other Midwestern states], so having a little bit more infrastructure cost doubles the per capita costs per Iowan," said Hicks. "The overall consequence to the Iowa economy is much worse because the loss of such a proportion of agricultural revenues this year. In Iowa, even if they didn't have to spend anything to remedy infrastructure damage, it's also facing a revenue challenge because of the inability of a lot of folks to pay property taxes and other revenues."

In Illinois, Gov. Rod Blagojevich continued his tour of flooded areas along the Mississippi yesterday as additional levees broke though much of the damage was limited to rural areas. As of yesterday, nine levees had burst, including five last week in east-central Illinois and four along the Mississippi this week.

The governor said in a statement that Illinois' emergency management officials had begun their damage assessment in 19 counties declared disaster areas. "These disasters will not only have an enormous economic and commercial impact in the Midwest, but the effects will also be felt in the national and global economies. It is crucial that these affected states receive federal funding for disaster mitigation and recovery quickly," read a letter Blagojevich and other Midwestern governors wrote in a letter yesterday to congressional leaders.

The governor earlier this month signed a measure that allows Madison, St. Clair and Monroe Counties in the region known as Metro East across from St. Louis to levy a quarter of a cent sales tax to finance levee repairs estimated as high as $180 million.

Kenward noted that many of the residential and commercial property owners along the Mississippi River in downstate Illinois left after the 1993 flood, and never moved back, leaving the open space and farmland that is now taking the brunt of the river breaching. After 1993, "Missouri learned its lesson and had a lot of capital improvements then ... the older levees are on the Illinois side, and how badly that damages those counties remains to be seen," he said.

In Wisconsin, state tourism at the popular Wisconsin Dells has taken a dramatic hit due to the flooding that claimed, at least temporarily, the popular man-made Lake Delton as it spilled over its banks and emptied into the Wisconsin River on June 9. The U.S. Department of Agriculture and Natural Resources Conservation Service is providing a $160,000 grant to help restore the lake.

At least 30 counties were declared by Gov. Jim Doyle in a state of emergency. Roads have also suffered and the state this week announced an emergency contract costing nearly $1 million to build a cross-over and end a lengthy detour because of flooding along a 30-mile stretch of the westbound lanes of the heavily traveled Interstate 94 between Milwaukee and Madison.

In Indiana, officials expect to release damage estimates within the next few days, but the Ball State economists put early costs at around $126 million which would make 2008 the second-most expensive flood year since records were started in 1955.

The $126 million figure includes nearly $46 million in damage to public infrastructure, according to Hicks. The report puts including road and bridge damage at roughly $15 million, sewer system damage at $3.2 million, and "other" public infrastructure damage, including parks and related facilities, at $25.7 million. State officials have applied for federal public assistance for 48 of the state's 92 counties, and for federal individual assistance for 30 states.

Local market participants say so far there's been little talk of an uptick in future short- or long-term borrowing plans. "I'm sure there will be the need to do some rebuilding, but I haven't heard of any schools, cities, or other issuers who has to do anything immediately," said Jim Merten from City Securities Corp. q